Below Russell Bennett, Chief Technology Officer at Fraedom, discusses the future prospects for AI in the banking sector, and what 2019 may hold.

AI is incredibly complex and doesn’t represent a single technology. Rather, it’s a multidimensional field encompassing a range of different technologies and methods, each supporting and supported by the others[1]. The technology’s pace of evolution has grown exponentially in recent years and if AI’s benefits and limitations are understood, it’s believed this technology will have a tremendous impact on the banking industry in 2019.

With so much potential ready to be unleashed, where exactly will we see AI’s influence in the banking sector in 2019?

Chatbots and Virtual Assistants

While chatbots have been used by financial institutions for several years, thanks to advances in AI their capabilities have continued to grow. Whereas they were once only used to answer generic FAQs, for example, most chatbots are now capable of initiating and performing tasks on their own. Thanks to these developments, Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022[2]. This is set to be only one of the benefits to banks with Gartner suggesting that by 2020 consumers will manage 85% of their total business interactions with banks through fintech chatbots[3].

Juniper estimates that the introduction of chatbots and virtual assistants will save companies $8 billion per year by 2022

While this could be a source of worry for the banking workforce, in reality, there should be little concern. Rather than acting as a replacement for employees, banks instead seem to be looking at AI as a tool to help release pressure points and empower the workforce with Accenture even predicting that banks that deploy AI wisely will see a 14% increase in jobs[4].

In 2016, Santander became the first UK bank to launch voice banking technology[5]. Of course, since then a large variety of global banks have adopted this technology in one way or another, suggesting that banks are looking at utilising AI beyond chatbots. In fact, with Mariano Belinsky, managing partner of Santander InnoVenture, discussing natural language processing[6], it seems to only be a matter of time before virtual assistants come into use.

Driving Customer Insights

Last year, we saw a clear disconnect between banks and their smaller customers. In these situations, intelligent automation could well be the answer to support businesses and provide a better service as well as working seamlessly with third parties and fintechs, rather than against them.

In our recent study of SMEs in the UK and US, we found that less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business, demonstrating a clear lack of engagement. In 2019, using automated data collection on an ongoing basis, behind the scenes, can ultimately ensure bank relationship managers are better equipped with in-depth knowledge about their customers; hence best positioned to support their business and provide a better service.

Less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business.

Security and Compliance

One of the key differences between AI applications and other, more traditional technological solutions, lies in AI’s ability to continuously learn from the data it is supplied with, hence refining its decision-making processes over time.

Cybersecurity is a current hot topic for the financial services sector and regulatory compliance is another. AI can add real value in both of these areas. Machine Learning platforms can be coded to identify user patterns and detect anomalous network behaviour, something that’s increasingly essential as cyber-attacks are often disguised with inconspicuous data or code.

In recent years, technology has been a disruptor and an innovator. Technology is increasingly helping shape customers’ wants, needs and expectations. With a raft of new regulation encouraging the use of technology in banking, there’s nowhere left for anyone to hide. The technology revolution is in full swing and for banks, it’s very much adapt or die.

In the very near future, it is likely that AI will completely revolutionise banking. It will redefine how banks operate, what innovative products and services they create and how they evolve the customer relationship. Banks must, therefore, embrace this new technology or risk of falling behind in an extremely competitive environment.

[1] https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Local/en-gb/PDF_3/Accenture-Redefining-Capital-Markets-with-Artificial-Intelligence-UKI.pdf

[2] https://www.juniperresearch.com/press/press-releases/chatbots-a-game-changer-for-banking-healthcare

[3] https://www.gartner.com/imagesrv/summits/docs/na/customer-360/C360_2011_brochure_FINAL.pdf

[4] https://www.accenture.com/gb-en/insights/banking/future-workforce-banking-survey

[5] https://www.santander.co.uk/uk/infodetail?p_p_id=W000_hidden_WAR_W000_hiddenportlet&p_p_lifecycle=1&p_p_state=normal&p_p_mode=view&p_p_col_id=column-2&p_p_col_pos=1&p_p_col_count=3&_W000_hidden_WAR_W000_hiddenportlet_javax.portlet.action=hiddenAction&_W000_hidden_WAR_W000_hiddenportlet_base.portlet.view=ILBDInitialView&_W000_hidden_WAR_W000_hiddenportlet_cid=1324582275873&_W000_hidden_WAR_W000_hiddenportlet_tipo=SANContent

[6] https://www.americanbanker.com/news/what-santanders-latest-bets-say-about-the-future-of-fintech

Artificial intelligence (AI), Big Data, and Cloud are no longer just buzzwords as enterprises globally are embracing all types of next-gen technology to drive significant business transformations. Blockchain, a more recent addition to the roster, fits within the same technology bracket and is poised to become a major disruptive force across all industries. However, despite emerging applications across supply-chain logistics, healthcare and FinTech that are promising ‘game-changing’ solutions leveraging the technology, to date, very few companies have been able to tap into the complete potential of blockchain.

The Growth of FinTech

Thanks to the rapid global proliferation of the Internet and coming of age of tech-savvy millennials, the marriage of technology and financial institutions has expanded from simple credit card and ATM transactions to online money transfers and payments. In fact, the FinTech industry has already staked its claim in adapting emerging technologies such as wireless payments and AI-enabled chatbots.

Leveraging these next-gen technologies to complete traditional financial transactions, such as money transfers and loan applications has resulted in many consumers looking to deal with FinTechs over traditional banks. Their ability to promptly, securely and successfully complete transactions have helped build customer trust over time. With the continued improvement in security and privacy measures backed by new technologies such as blockchain, the ‘trust quotient’ in the financial services industry is bound to rise manifold. Looking ahead, 77% of financial institutions are expected to adopt blockchain by 2020, according to PwC’s 2017 Global FinTech Report.

What is Blockchain?

Oftentimes incorrectly used interchangeably with the term Bitcoin, blockchain is actually a distributed ledger that is capable of maintaining an ever-growing list of records. Although it resembles a spreadsheet like Excel, there are certain unique features that set blockchain apart from traditional databases:
• Decentralised: Blockchain promotes a decentralised system where data is distributed across several servers. Its lack of a single authority makes the system fair and more secure.
• Immutable: Blockchain is a tamper-free environment. It has immutable and irreversible records that do not permit changes once a ‘block’ is written. Only new records can be written.

These key benefits make blockchain a vital tool in building trust between businesses and customers, which is especially critical in the financial services industry, by providing access to accurate data from retail banking to investment banking to insurance.

How Blockchain Helps Build Trust

In the digital era, the rate at which consumers adopt next-gen technology is among the top growth metrics for the FinTech industry; however, FinTechs face big challenges in generating trust among consumers. This is where blockchain comes into the picture. In a complete shift from how traditional banks operate - where customers have little to no insights into their banks’ operations and processes, blockchain maintains its data in a centralised repository. This shifts the ‘power’ into the hands of the consumer, effectively cutting out intermediaries and ensuring complete transparency in all transactions.

Blockchain provides companies with access to a decentralised network where they can share information in a secure environment that guarantees unalterable data transfers and ensures an agreement of obligations from both parties when processing a transaction. In addition, it simplifies financial services, such as money transfers, loan applications, and mobile payments, something that every customer yearns for in terms of augmenting their overall experience.

Ensuring the accurate authentication and authorisation of every customer and transaction is another big challenge for FinTechs when it comes to establishing trust. Blockchain technology makes these functions, as well as identity management, a lot simpler and more convenient by enabling users to choose the mode of identity and with whom they want to share it while registering. The information is then stored on a secure decentralised network, with user-only access to alter it. This helps FinTech companies save on paperwork and data servers.

Blockchain Applications in FinTech

Cross-Border Payments

Cross-border money transfers can be expensive and slow due to complex procedures. Blockchain technology is able to simplify, speed up, and make cross-border payments less expensive. Peer-to-peer transactions cut out the ‘middlemen’, resulting in faster and less expensive transactions. In fact, blockchain also helps lower the remittance costs on the total transfer amount from about 20% to a mere 3%.

Smart Contracts

Smart Contracts are arguably one of the most promising applications of blockchain in the FinTech industry. They are nothing but computer programs developed to verify or enforce agreements. These contractual clauses are either partially or fully self-executing or self-enforcing. Smart Contracts using blockchain help in recording information on a shared ledger, making it an unquestionable digital proof, thus empowering everyone from regulators to individual artists and authors with strong security features, a lowered risk of internal hacking, and the prevention of plagiarism of work by intermediaries.

Share Trading

Share trading involves several third parties, such as brokers and the stock exchange. This makes the clearing and settlement process time-consuming and cumbersome with multiple stages and bureaucracy to navigate that can take up to three working days to complete. The decentralised nature of blockchain technology, however, helps remove the unnecessary intermediaries and optimise the whole lifecycle of the trade by enhancing trade accuracy, speeding up the settlement process, and reducing risks.

Trade Financing

Trade financing – financial activities related to commerce and international trade – involves lots of tedious paperwork and bureaucracy, making the process highly time-consuming and risky. Blockchain-based trade financing helps overcome these bottlenecks, streamlining the process. It eliminates the need for participants to maintain a personal database of documents as well as the risk of an error in one document being duplicated to its copies by creating a single digital document that contains all the necessary information. Blockchain also supports real-time updating of the document, which ensures all members have access to the most up-to-date information at all times.

Happily Ever After: FinTechs and Blockchain

In today’s increasingly digitised world, there is a growing need for a bridge between new technologies and financial institutions in order for the industry to meet the demands of consumers who want a convenient yet safe and secure way to complete their financial transactions. Blockchain has the ability to build that bridge and FinTechs leveraging this new technology will reap the rewards of an exponentially increasing customer base.

With the support of a trusted service delivery partner with experienced customer service agents who can knowledgeably address questions and concerns about blockchain, these new FinTech kids on the financial block are poised to take on traditional banks.

About Neeraj Sabharwal
Neeraj Sabharwal, Director of Cloud and Big Data Solutions at Xavient Digital - powered by TELUS International, has more than 15 years of experience in the next-gen technology industry, helping customers derive incremental value from their data. He is a true data enthusiast and enjoys writing his popular blog and regularly contributes to articles as a member of the Forbes Tech Council.

About Xavient Digital - powered by TELUS International
Xavient Digital is a US-based provider of digital IT solutions and software services, headquartered in California with offices throughout the United States and an international network of delivery centers. Xavient Digital leverages its global footprint to deploy the best talent, time to market and cost optimisation benefits for its customers. Xavient Digital’s corecompetencies are in digital transformation stacks and full lifecycle IT services across telecom, media, BFSI and consumer technology verticals.

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As payment methods become more seamless to cater for consumers who demand a quick and easy user experience, concerns around protection of payment details have been mounting. Here Finance Monthly hears from James Romer, Chief Security Architect for SecureAuth, on the ins and outs of customer payment information, how it’s controlled and the potentials for multi factor authentication.

In light of recent data breaches, consumer trust in the ability of businesses to keep their data safe is at a low. Despite being well-established and active for decades, authentication techniques such as username and password for online payment portals, have been failing consumers and financial institutions for years, as they are simply no longer enough to defend against bad actors. It is clear that more advanced authentication techniques are needed to keep our finances and data secure.

Why two factor authentication isn’t enough

To defend against increasingly sophisticated attacks on financial services, a comprehensive and intelligent approach is needed. A strategy that focuses on where most breaches occur – i.e. the identity level – and combines multiple authentication techniques that do not hinder the user is needed. Multi-factor authentication (MFA) combines a minimum of three factors: ‘something you are’ (for example, a facial scan), ‘something you have’ (such as a bank card) and ‘something you know’ (a passphrase or password) and can improve identity security both in the payment transaction process, as well as when the customer is accessing a payment portal.

To improve security around online transactions, two-factor authentication (2FA) was introduced to bolster traditional username and password methods. It involves using an additional verification step; such as information that’s unique to the individual, a physical token or an SMS one-time passcode (also known as SMS OTP). While 2FA was a step in the right direction, and might deflect the average attacker, for a motivated one it’s no longer enough. Phone-based authentication and knowledge-based questions can be easily defeated by determined attackers, as seen with the recent Reddit data breach. This pitfall, combined with the less than user-friendly experience, and delays that often accompany 2FA, financial organisations need to re-think their security strategy.

Applications in the financial industry

MFA has the potential to transform payment transactions and customer experience when accessing financial information, helping to protect against fraud whilst at the same time improving usability for the consumer. Overall, the user experience with multi-factor authentication is seamless, making a strong case for a move away from the 2FA approach for good. For example, looking at contactless transactions the end user will simply present their card, while holding their enrolled finger over the embedded fingerprint reader during the POS transaction. Verification of the fingerprint is performed on the card during the transaction, using a pre-enrolled template. If the fingerprint matches, then the transaction is approved. If the read or the match fails, then an additional challenge (for example PIN) can be offered.

But it’s not just cards that this can be applied to. When a customer is accessing an online payment portal, adequately authenticating the user is critical to protecting sensitive data. Although customers are accustomed to (and often reassured by) lengthy authentication processes, a reduced number of steps will greatly improve the quality and ease of their interaction. Forward-thinking organisations understand this and will implement modern techniques, such as adaptive authentication, where both security and user experience can be enhanced. These techniques act in the background to quickly verify different aspects of the user’s login attempt, considering factors such as location, device used and IP address, without compromising the experience.

For example, SecureAuth worked with a large UK-based financial services enterprise to secure and protect its customer portals. The company recognised that their business model was largely based on repeat custom, so aimed to prioritise customer retention through a personalised personal portal. Following detailed research into the preferences stated by their own customer base, this organisation was able to offer authentication that adapted to the user’s needs and preferences, for instance, by using demographic information to give the most appropriate authentication method based on market research. In addition, repeat users enjoyed a frictionless experience without repeat access requests, as authentication was only required at the transaction phase. This greatly reduced the amount of times that credentials were requested and improved the overall user experience, highlighting how with modern authentication approaches; increased security doesn’t have to impact user experience.

Protection of the authentication process in the financial industry is absolutely essential, as no single authentication technique is beyond the reach of malicious actors. It is only a matter of time before they find a way to circumvent traditional authentication methods. True identity security must rely on multiple factors combined with risk analysis. By implementing adaptive methods that flex and change according to this associated risk, organisations can allow access, deny, step-up or step-down users at the authentication stage. This means that even if a malicious actor possesses one aspect of the user’s unique profile, such as biometric information, then other factors will be considered to authenticate them. In this way, payment and personal information can be protected and consumer trust maintained.